What is MCA "Stacking" and why we discourage it?
Updated: Oct 15, 2020
“Stacking” is a Merchant Cash Advance industry term used to describe a scenario where a business takes out multiple cash advances at the same time. You may see them referred to as “multiple positions” with each subsequent advance being referred to in sequential order (i.e. “2nd position”, “3rd position”, etc.). This often happens when a business takes out an advance, but is in need of additional working capital, or when sales people and brokers solicit business owners with the promise of more cash available to them.
But what they won’t tell you is that taking out additional positions will only increase the amount that you are paying back on a daily or weekly basis.
For example, let’s say you’ve been advanced $10,000 with an agreed payback amount of $14,000 at $200 a day. But now the same sales person who helped you get that money says your business qualifies for another $10,000 with an agreed payback amount of $12,000 at $150 a day repayment. This would bring your total daily payments from $200 to $350 a day now, putting further strain on your cash flow and available daily balances. It’s a slippery slope from there as business owners will often times continue to take out further advances each time the advanced amount runs out without regard to how much they are paying. We’ve seen scenarios of merchants who have taken out over 10 simultaneous advances, paying back well over $2,000 a day!
Often, the sales person re-approaching you to offer more money is looking to earn some additional commission, and despite appearing like the funds are coming from the same company – they are likely shopping it out to a different funding company who is willing to take on an “additional position” and “stack.” Many funding companies actually have verbiage in place on their agreements that prohibit such a practice.
When a cash advance is initially offered, the underwriter on the file assesses your business’s cash flow and determines the maximum amount that can be advanced without creating negative effects on the business. By taking out additional concurrent advances, it can often times affect a business’s financials negatively more than it helps. It is for this reason that Elevate Funding takes a strict Anti-Stacking policy in our approach to help small businesses. We will not extend funding to businesses who already have an existing cash advance unless we can help them pay it off, get some additional capital, and offer a better rate. We also do our best to educate our customers on these practices, and have developed add-on programs to help merchants in need of additional capital without increasing the amount of strain placed on their daily cash flow.